Results/ Briefing

• Inline: 1QFY15 core PATAMI surged by 23% YoY and 27% QoQ, making up 18% of HLIB and consensus full-year estimates, respectively.

Deviations

• Expect stronger 2H due to progress recognition from Kraken and Angola FPSO projects.

Dividends

• None.

Highlights

• 1QFY15 core PATAMI increased by 23% YoY and 27% QoQ after adjusted for total non-cash expenses of RM7.4m from: i) RM21m staff retrenchment cost; ii) RM15m doubtful debt written back; and iii) RM2m impairment for available for sale assets. There were no provisions made in the current quarter.

• OSV business was barely breakeven at EBIT level as average utilisation rate fell to 71% from 79% given oversupply rig market has dampen OSV’s demand. BAB has identi fied 5 vessels for sale. We expect the OSV business to remain weak given the pressure from lower utilisation and charter rate amidst low oil price.

• In view of the low oil price and capex cut by E&P players, BAB has continued its effort on cost rationalisation, including the closure of oil field services business and downsizing T&I business. The cost rationalisation approach should result in an estimated annual cost savings of RM65m.

• Total orderbook stood at RM38.9bn (RM25.6bn on fi rm and RM13.3bn on extensions), excluding RM1.1bn Malta FSU contract which was signed in Apr 15.

• FSU/FSRU and FLNG segments should provide new growth opportunity for BAB going forward. To recap, BAB has secured US$300m FSU contract in Europe. The cont ract duration is 18 years and 2 month. This marks its maiden venture into the floating LNG business in addition to its traditional FPSO and OSV business. BAB is currently bidding for sevral FSU/FSRU contracts.

Risks

• Increased competition as new players enters the market.
• Execution risk, including oil spills and their clean-up costs.
• Plunge in crude oil price.

Forecasts

• Unchanged.

Valuation

• We maintain our BUY call with TP unchanged at RM1.54 based on SOP valuation method.

Source: Hong Leong Investment Bank Research - 27 May 2015